Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Microvision develops miniature display and imaging engines based on integrated photonics and MEMS light scanning technology. The company's primary focus is the "PicoP" display engine for consumer electronics (pico projectors), automotive heads-up displays (HUDs), and wearable displays. Additionally, the company markets the ROV line of handheld bar code scanners.
Key Financial Metrics
| Metric (in thousands) | 2007 | 2006 |
|---|---|---|
| Total Revenue | $10,484 | $7,043 |
| Net Loss | $(19,787) | $(23,984) |
| Net Loss Per Share (Basic/Diluted) | $(0.40) | $(0.81) |
| Cash and Cash Equivalents | $13,399 | $14,552 |
| Investment Securities (Available-for-Sale) | $22,411 | $0 |
| Total Assets | $45,298 | $35,325 |
| Working Capital | $30,043 | $19,160 |
| Accumulated Deficit | $(259,421) | $(239,634) |
Revenue Composition (2007): Contract revenue (development agreements) accounted for $9.01 million (86%), while product revenue (bar code scanners) accounted for $1.47 million (14%). Government contracts represented 61% of total revenue.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 49% to $10.5 million, driven primarily by a 71% increase in contract revenue ($9.01 million vs. $5.28 million). Government contract revenue rose 79% to $6.43 million.
- Product Revenue Decline: Product revenue decreased 17% to $1.47 million. This was due to the phase-out of the "Nomad" product and a delay in the commercial launch of the new "ROV" scanner, which began shipments only in Q4 2007.
- Improved Loss Position: Net loss narrowed to $19.8 million from $24.0 million in 2006. This improvement was aided by a $6.6 million gain on the sale of Lumera common stock and reduced interest expense following the retirement of convertible notes in March 2007.
- Liquidity Position: The company raised $34.1 million in June/July 2007 through the exercise of publicly traded warrants. Total cash and investment securities stood at $35.8 million at year-end.
- Backlog Reduction: Contract backlog decreased to $3.8 million from $6.8 million in 2006.
Guidance, Outlook, and Risks
Outlook and Capital Needs: Management believes current cash resources are sufficient to fund operations through at least March 2009. The company expects to incur substantial losses in 2008 and will require additional capital thereafter, likely through equity or debt issuance.
Key Risks and Contingencies:
- Liquidity Risk (Auction-Rate Securities): As of December 31, 2007, $8.8 million of the investment portfolio was held in auction-rate securities. In early 2008, failed auctions rendered $4.3 million of these securities temporarily illiquid due to global credit market conditions. While the underlying assets are AAA-rated, the company may be forced to sell at a loss if liquidity is needed.
- Government Contract Dependence: 61% of revenue is derived from U.S. government contracts, which can be terminated for convenience at any time.
- Legal Proceedings: The company is suing former CEO Richard Rutkowski and his spouse to collect $1.73 million in unpaid loans. Counterclaims seeking over $15 million have been filed against the company.
- Market Acceptance: Success depends on OEM adoption of the PicoP display engine, which faces competition from established display technologies.
Investor Verification Checklist
- Liquidity Status: Verify the current status of the $4.3 million in illiquid auction-rate securities and whether the company has accessed alternative funding.
- Legal Exposure: Monitor the outcome of the litigation with former CEO Richard Rutkowski regarding the $1.73 million loan and the $15 million counterclaim.
- Product Launches: Confirm the commercial shipment status and revenue recognition of the ROV bar code scanner and PicoP-based prototypes (e.g., SHOW projector).
- Government Funding: Assess the stability of U.S. government development contracts, which constitute the majority of revenue.
- Cash Burn Rate: Review quarterly cash flow statements to ensure the runway through March 2009 remains valid given ongoing R&D expenses.